Author, Subjects, Keywords

Cited Author

 
 
   » By Author or Editor
 » Browse Author by Alphabet
 » By Journal
 » By Subjects
 » Malaysian Journals
 » By Type
 » By Year
 » By Latest Additions
 
 
   » By Author
 » Top 20 Authors
 » Top 20 Article
 » Top Journal Cited
 » Top Article Cited
 » Journal Citation Statistics
 » Usage Since Sept 2007


 
 
 

Login | Create Account

Episodic non-linearity and non-stationarity in ASEAN exchange rates returns series

Lim, Kian Ping, and Hinich, Melvin J. , and Liew, Venus Khim Sen, (2003) Episodic non-linearity and non-stationarity in ASEAN exchange rates returns series. Labuan Bulletin of International Business and Finance, 2 (1). pp. 79-93. ISSN 1675-7262

[img]
Preview
PDF - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
340Kb

Official URL: http://wwwkal.ums.edu.my/LBIBF/Articles/V1N2A1.pdf

Affiliations

Universiti Malaysia Sabah. Labuan School of International Business and Finance
University of Texas at Austin. Applied Research Laboratories
Universiti Malaysia Sabah. Labuan School of International Business and Finance

Abstract

A method proposed by Hinich and Patterson (1995) is employed in this study to examine the stability of the non-linear dependency structures underlying the exchange rates returns series of four ASEAN countries- Indonesia (IDR), the Philippines (PHP), Singapore (SGD) and Thailand (THB). The bicorrelation test results reveal the episodic and transient nature of these non-linear dependencies, which suggest that they are not persistent enough for investors to benefit from it. By transforming the returns into a set of binary data, the extended test procedure demonstrates that, while the GARCH-type models are commonly applied to financial time series such as exchange rates, they cannot provide an adequate characterization for the underlying process of IDR, PHP and THB bilateral exchange rates. Further investigation reveals that the violation of the covariance stationarity assumption as required by the GARCH process is due to the presence of episodic non-stationarity in the data. Given the prevalence of these episodic transient features across financial markets in the world, there is the need for researchers to take into account these salient features in their model construction.

Item Type:Journal
Keywords:GARCH; Non-linearity; Non-stationarity; Correlations; Bicorrelation; ASEAN foreign exchange markets.
Subjects:H Social Sciences, Economics, Sociology
ID Code:5970

1. Abhyankar, A.H., Copeland, L.S. and Wong, W. (1995) Nonlinear dynamics in real-time equity market indices: evidence from the United Kingdom. Economic Journal, 105,

864-880.

2. Ammermann, P.A. and Patterson, D.M. (2003) The cross-sectional and cross-temporal universality of nonlinear serial dependencies: evidence from world stock indices and

the Taiwan Stock Exchange. Pacific-Basin Finance Journal, 11, 175-195.

3. Balke, N.S. and Fomby, T.B. (1997) Threshold cointegration. International Economic Review, 38, 627-645.

4. Barkoulas, J. and Travlos, N. (1998) Chaos in an emerging capital market? The case of the Athens Stock Exchange. Applied Financial Economics, 8, 231-243.

5. Barnett, W.A. and Serletis, A. (2000) Martingales, nonlinearity, and chaos. Journal of Economic Dynamics and Control, 24, 703-724.

6. Bierens, H.J. (1997) Nonparametric cointegration analysis. Journal of Econometrics, 77, 379-404.

7. Bollerslev, T. (1986) Generalized autoregressive conditional heteroskedasticity. Journal of Econometrics, 31, 307-327.

8. Brock, W.A., Dechert, W.D., Scheinkman, J.A. and LeBaron, B. (1996) A test for independence based on the correlation dimension. Econometric Reviews, 15, 197-235.

9. Brooks, C. (1996) Testing for non-linearity in daily sterling exchange rates. Applied Financial Economics, 6, 307-317.

10. Brooks, C. and Hinich, M.J. (1998) Episodic nonstationarity in exchange rates. Applied Economics Letters, 5, 719-722.

11. Brooks, C. and Hinich, M.J. (2001) Bicorrelations and cross-bicorrelations as tests for nonlinearity and as forecasting tools. Journal of Forecasting, 20, 181-196.

12. Brooks, C., Hinich, M.J. and Molyneux, R. (2000) Episodic nonlinear event detection: political epochs in exchange rates. In D. Richards (ed.) Political complexity: political epochs in exchange rates, pp.83-98. Michigan University Press.

13. Campbell, J.Y., Lo, A.W. and MacKinlay, A.C. (1997) The econometrics of financial markets. Princeton: Princeton University Press.

14. De Grauwe, P., Dewachter, H. and Embrechts, M. (1993) Exchange rate theory: chaotic models of foreign exchange markets. Oxford: Blackwell.

15. Diebold, F.X. and Nason, J.A. (1990) Nonparametric exchange rate prediction? Journal of International Economics, 28, 315-332.

16. Engle, R.F. (1982) Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation. Econometrica 50, 987-1007.

17. Hinich, M.J. (1982) Testing for Gaussianity and linearity of a stationary time series. Journal of Time Series Analysis, 3, 169-176.

18. Hinich, M.J. (1996) Testing for dependence in the input to a linear time series model. Journal of Nonparametric Statistics, 6, 205-221.

19. Hinich, M.J. and Patterson, D.M. (1989) Evidence of nonlinearity in the trade-by-trade stock market return generating process. In W.A. Barnett, J. Geweke, and K. Shell (eds.) Economic complexity: chaos, sunspots, bubbles and nonlinearity- international symposium in economic theory and econometrics, pp.383-409. Cambridge: Cambridge University Press.

20. Hinich, M.J. and Patterson, D.M. (1995) Detecting epochs of transient dependence in white noise. Mimeo. University of Texas at Austin.

21. Hsieh, D.A. (1988) The statistical properties of daily foreign exchange rates: 1974-1983. Journal of International Economics, 24, 129-145.

22. Hsieh, D.A. (1989) Testing for nonlinear dependence in daily foreign exchange rates. Journal of Business, 62, 339-368.

23. Hsieh, D.A. (1991) Chaos and nonlinear dynamics: application to financial markets. Journal of Finance, 46, 1839-1877.

24. Kapetanios, G., Shin, Y. and Snell, A. (2003) Testing for a unit root in the nonlinear STAR framework. Journal of Econometrics, 112, 359-379.

25. Liew, V.K.S., Chong, T.T.L and Lim, K.P. (2003) The inadequacy of linear autoregressive model for real exchange rates: empirical evidence from Asian economies. Applied

Economics, 35, 1387-1392.

26. Lim, K.P, Azali, M., Habibullah, M.S. and Aziz, M.A. (2002) Non-linear dependence in ASEAN-5 foreign exchange. Proceedings of the Asia Pacific Economics and Business

Conference 2002, 2-4 October 2002, Sarawak, Malaysia, volume 2, pp.893-901.

27. Loretan, M. and Phillips, P.C. (1994) Testing the covariance stationary of heavy-tailed time series. Journal of Empirical Finance, 1, 211-248.

28. Opong, K.K., Mulholland, G., Fox, A.F. and Farahmand, K. (1999) The behavior of some UK equity indices: an application of Hurst and BDS tests. Journal of Empirical Finance, 6, 267-282.

29. Pagan, A.R. and Schwert, G.W. (1990a) Testing for covariance stationarity in stock market data. Economics Letters, 33, 165-170.

30. Pagan, A.R. and Schwert, G.W. (1990b) Alternative models for conditional stock volatility. Journal of Econometrics, 45, 267-290.

31. Pesaran, M.H. and Potter, S.M. (1993) Nonlinear dynamics, chaos and econometrics: an introduction. In M.H. Pesaran and S.M. Potter (eds.) Nonlinear dynamics, chaos and

econometrics, pp.7-13. New York: John Wiley & Sons.

32. Pippenger, M.K. and Goering, G.E. (1993) A note on the empirical power of unit root tests under threshold processes. Oxford Bulletin of Economics and Statistics, 55, 473-481.

33. Ramsey, J.B. and Zhang, Z. (1997) The analysis of foreign exchange data using waveform dictionaries. Journal of Empirical Finance, 4, 341-372.

34. Sarno, L. (2000) Real exchange rate behaviour in high inflation countries: empirical evidence from Turkey, 1980-1997. Applied Economics Letters, 7, 285-291.

35. Scheinkman, J. and LeBaron, B. (1989) Nonlinear dynamics and stock returns. Journal of Business, 62,311-337.

36. Steurer, E. (1995) Nonlinear modeling of the DEM/USD exchange rate. In A.P. Refenes (ed.) Neural networks in the capital markets, pp.199-211. New York: John Wiley & Sons.

Repository Staff Only: item control page
 
 
 
 
 
 
© Copyright 2007 MyAIS Faculty of Computer Science and Information Technology, University of Malaya – All Rights Reserved. Malaysian Abstracting and Indexing System is powered by EPrints 3 which is developed by the School of Electronics and Computer Science at the University of Southampton. More information and software credits.